The Indian Defense Market - Is There Space for North American Companies

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An analyst briefing presentation delivered by Frost & Sullivan aerospace & defense industry manager Wayne Plucker.

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The Indian Defense Market - Is There Space for North American Companies

  1. 1. The Indian Defense Market - Is There Space for North American Companies? Wayne Plucker, Industry Manager Aerospace & Defense January 20, 2011
  2. 2. Today’s Presenter Wayne Plucker, Industry Manager Aerospace & Defense Frost & Sullivan 2
  3. 3. Focus Points Opportunities Overview: Indian Defence Market Trends in the Indian Defence Industry The Indian Defence Offsets : Methodology Offset Strategy Conclusions 3
  4. 4. Overview of Indian DefenseMarket Global Aerostructures Market 44
  5. 5. India Defense Introduction• What has changed in Indian Defense Procurement? • Main change-planned acquisition procurement pipeline • Last two decades-no planned upgrades/modernization-more ad-hoc approach • Majority of Indian Armed Forces equipment from Soviet Union – serious after- market and maintenance issues. • The Kargil conflict (1999)- turning point-Government decided to push through modernization program.• What will change in the Future? • The procurement procedures are evolving, expect more structure and well defined procedures • Local industry- the private sector will become a major partner in this public sector-dominated industry 5
  6. 6. India Defense 11th Plan spending set to be over $32 Billion Defense Market : Comparative Spending By Force (India), 2007-2013 US$ 32 US$ 22.4 Billion Billion D efen ce E xp en d itu re(In US $ 40000 6.7 13.8 35000 30000 M illio n ) 4.3 25000 20000 15000 12 11.4 10000 5000 0 6.2 2008 2009 2010 2011 2012 2007 2013 Year Air Forces Naval Forces Land Forces• Various Capital Procurements Planned for all services are set to kick in during the 11th Plan period (2007-2013)• This production pipeline will continue to grow during the course of the forecast period, affording opportunities for investment up until 2025 Current Equipment Focus is on Land Systems, by 2012 the focus will shift to Air Force Modernization Note: All Figures Are Rounded, Base Year 2007. Source: Frost & Sullivan 6
  7. 7. Modernization requires massive investment and provides India Defense significant opportunity to team up with Indian Industry • Modernization of the Indian Armed Forces is considered to be lagging behind by up to 10 years • It is expected that India would be spending about US $100bn during the 11th Plan Period (2007-2013) • Of this, up to 40% will be dedicated to Capital Procurement • Study of Indian Armed Forces by Confederation of Indian Industry highlighted the equipment procurement problem facing India:Current Make-up of Indian Armed Forces Installed Base Aspirational Make-up of Indian Armed Forces Installed Base 15% 30% 30%50% 35% 40% State of the Art Matured Obsolete 7
  8. 8. Expected growth in imports in major defense spending nations highlights a Defense need to diversify customer base as well as Govt-Govt route to market Top Defence Importers 2003-2011 *Source: UK DESO Netherlands Japan Australia Greece USA Turkey India S Korea China Saudi Arabia 0 10 20 30 40 50 60 2003-2007 US$ Billion 2007-2011• Traditional Defense importers are increasingly looking to develop and support local industry through offset• Asia-Pacific is a major importer of defense technology, but local competition are set to become significantcompetitors on export markets• Indian Defense Industrial Base has been limited to Defense PSUs and Ordnance Factories, this iswitnessing a sea change, with emerging domestic defense companies and Defense Offsets is a key driver• Global Defense OEMs are entering into long term partnerships with domestic industry 88
  9. 9. India Defense Industry Structure• There is an ongoing shift towards developing a modern private defence sector• In the future, partnerships with PSU’s will have to be complemented with private sector relationships Department of Defense Production Ordnance Bharat Mazagon Dock Garden Reach Factory Board Electronics Ltd Shipbuilders Bharat Earth Bharat HAL Mishra Dhatu Movers Dynamics Directorate General Directorate General Directorate of Defense Exhibitionof Quality Assurance of Aeronautical QA Standardisation OrganisationIndia has 8 Defense Public Sector Undertakings and 39 Ordnance Factories which account foralmost total indigenous production of military goods. 9
  10. 10. Offsets are key aspects of business in India and has India Defense become a key decision area when awarding contracts Description of Offset rules• 2008 offset policy designed to leverage the country’s position as a large buyer and exporter. Any procurement exceeding $75• Provisions apply to all purchases from foreign vendors Million a minimum of 30% must be reinvested into the defense• Policy also applies to RFPs issued by the MOD and imports by market in the form of the defence Public Sector Undertakings (PSUs), Ordnance components and services. Factories, and Indian Private defence companies. All Indian offsets partners must be granted an Industrial Licence from Department of Industrial Policy & Promotion (DIPP). Options to meet Offset obligations are threefold depending on Foreign vendors’ purchase or investment patterns within India’s domestic defense capabilities. Direct foreign investment in Indian Foreign Direct Investment in Indian Direct procurement of defense organizations engaged in defense defense industries in industrial products, components and Research & infrastructure, co-development, services from Indian defense Development as certified by joint ventures and co-production of industries. Defense Offset Facilitation Agency defense products. (DOFA). 10
  11. 11. India Defense Key Points on Offsets• Joint Secretary in DDP (Defense Department Production) heads the DOFA (Defense Offset Facilitation Agency) with associated members from: HQ Integrated Defense Staff, Service HQ, DRDO, Defense Public Sector Unit, OFB, CII/ FICCI/ASSOCHAM and other trade bodies.• DOFA designed to act as a single window agency for all matters pertaining to defense offsets.• DOFA may engage independent professional expert bodies to assist in its functions and commission studies on offset policies, implementation, utility and impact.• The Defense offsets Policy is an evolving one; some key points under evolution are : • The Defense Offsets may be raised from 30% up to 50 %, on a case by case basis • The duration of banking of defense offsets maybe increased • There is a strong case for the FDI (Foreign Direct Investment) limit for the foreign partner to be raised from 26% to 49 % • Co-Production and joint development programs could be the focus 11
  12. 12. Defense Offset opportunities – Key Segments & Acquisition ProgramsSECTOR SHORT TERM MID TERM LONG TERMSHIP BUILDING Modular design & Material sciences Ship systems Integrated ConstructionAIRCRAFT Embedded Systems Microwave systems Propulsion plantsHELICOPTERS Composite materials Gear Boxes Propulsion plantsMISSILES Rocket propulsion Canister /VLS Seeker techSENSORS/ RADARS Medium Frequency MFR/ Phased Array Advanced Intelligent Sonar Radar systems 12
  13. 13. Army Budget - Projected Procurement and size• Change in war doctrine due to externally abetted proxy war, insurgency, militancy & Major Indian Army Programs semi urban terrorism. 2009- 2014• The focus is on precision fire power, air defense, missile systems and Aviation, Future Infantry Soldier as a system, network centricity • Modernization Program of and achieving battle field transparency through artillery & guns improved surveillance, night vision and target • Light Armored Vehicles acquisition. • Tactical Communication Artillery Modernization Program • T-90 procurement • 814 motorized howitzers (under Buy-Make category) • QRSAM & MRSAM • 100 155mm/52-calibre self-propelled tracked • Helicopter Replacement Program guns • MALE and Tactical UAVs • 140 air-mobile ultra-light howitzers (ULHs) • 400 155mm/52-calibre towed artillery guns, which is to be followed by indigenous manufacture of another 1,180 howitzers Capital spending for the current programs expected to be $2.6bn including modernization program. 13
  14. 14. Indian Air Force Budget - Projected Procurement and size Major IAF Programs• IAF is under Transformation• Plans for 64 squadrons including; 45 Combat 2009- 2014 sqdn (currently 30), 12 Transport force and 7 Force • Hawk Advanced Jet trainer, Multipliers.• 6 squadrons through MMRCA Programs and • SU 30 MKI the rest through Sukhoi, LCA and upgrades • LCA. HAL Tejas of MIG and Mirage. • C-130 J, C-17 MMRCA ( 2011 -2020) • AWACS • MALE UAVs/ UCAVs • 126 Medium multi role combat aircraft • Indigenous SAM – AKASH • Market size forecasted to be more than $11 Billion • Attack Helicopters –Dhruv ALH, MI-17 • 50 % offset to Indian Defense market from 2014 • Heavy lift helicopters when the first squadron is inducted. • Upgrade programs – MIG 29, AN 32, Mirage 2000, Jaguar •Estimates are that IAF would consistently need to invest $5 – $6 Billion annually for the next 10 years to build its operational and infrastructural capabilities to meet the desired level of minimum 45 Combat squadrons. 14
  15. 15. Navy Budget - Projected Procurement and Size• Real time networking –thrust area. Increasing Major IN Programs the connectivity and networking via increased 2009- 2014 use of C4ISR• Trends towards reducing the number of • Scorpene Submarine surface ship & increasing the no of the • 75I Program submarines • Vikramaditya (Gorshkov) [under procurement]• Aerospace, Shipbuilding and Development of Systems are the areas where offsets would • IAC [under procurement] be generated. • MiG29K [under procurement] Naval Projected Requirement • Multi Role Helicopter• 52 Aircrafts & Aerial Vehicles • Shivalik & Talwar Class vessels• 95 Missile Systems • Akula Class & Project 75/75I Submarines • Counter Mine & special ops vehicle• 80 Fast Interceptor Craft •The aerospace sector has a potential of about Rs 6500 crores (10mil) in offsets, the ship building sector has a potential of about Rs. 6200 crores, high technology weapons and sensors have a potential value in the range of about Rs. 1600 crores from the planned projects. 15
  16. 16. India Defense Key Market Entry Strategies into the defense market • With liberalization, many Indian private sector companies have entered the defense Joint market. Ventures • This allows companies to explore beyond the scope of individual contracts • This is a stepping stone towards greater industry cooperation and future joint ventures MOU’s/ and partnershipsAgreements Many Global OEMs adopted this strategy while exploring business opportunities in the Indian market • Strategy used to sustain a long term presence in the market and establish businessTechnology relationship with industry and procurement officials Eg- Honeywell India’s R&D Centre, EADS technology centre, Boeings’ partnership with Centers IITs/ IISc.Consortium • When bidding for individual programmes, it’s the most preferred strategy Approach • It facilitates entry into the market and the possibility of creating niche market presence Contracts • Direct access when the cost of contract falls below offset obligations and domestic industry cannot provide falling • These include certain technologies and equipment for armed forces and smallBelow offset surveillance and radar technologies targets Eg- many Israeli firms specializing in surveillance, radar technology enter the market without offsets. 16
  17. 17. India Defense Conclusions and RecommendationsMarket is opening up to foreign competition - Total imports now exceed US$15 billion per year and are expected to double by 2015.• The Indian Defence establishment is seeking to broaden its equipment supplier portfolio• Funding has not proven to be a constraint, but access to market requires investment in-country• Geo political influences do have a role to play… Govt 2 Govt contracts• Indian RFPs typically are Unique ! Don’t expect them to conform to standard equipment profiles• Global OEMs in India need to develop direct relationship. It’s a long term game – need to invest in relationships.• There is an immense potential at Tier II and Tier III level for partnering with local industry – sub contracts, sub vendors – Indian Market is not just for the big player, SME’s can profit too!After market issues are extremely important in India and provide a healthy revenue stream• Showcase your capabilities – the Indian Armed Forces are a technologically aware force.• There are emerging opportunities in the Homeland security market, where there are commonalities of the equipment.• Indian offset policy is pitched at a base level. View it as another business opportunity. Equipment must have minimum 30 percent indigenous content 17
  18. 18. Conclusion/Key Take-Aways• The procurement procedures are evolving, expect more structure and well defined procedures• Indian RFPs typically are Unique! Don’t expect them to conform to standard equipment profile• India will spend about US $100bn during the 11th Plan and up to 40% will be dedicated to Capital Procurement• The Defense Offsets Policy is an evolving one• After-market issues are extremely important and provide a healthy revenue stream• Current Equipment Focus is on Land Systems, by 2012 the focus will shift to Air Force Modernization 18
  19. 19. Next Steps Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. (myfrost@frost.com) 1-877-GoFrost (1-877-463-7678) Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth (www.gil-global.com) Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news) 19
  20. 20. Your Feedback is Important to Us What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive Structure?Emerging Trends?Strategic Recommendations?Other? Please inform us by taking our survey. Frost & Sullivan’s Growth Consulting can assist with your growth strategies 20
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  22. 22. For Additional InformationSarah Saatzer Aaron KravetzCorporate Communications Sales ManagerFrost & Sullivan Aerospace & Defense(210) 477-8427 (917) 202-3422sarah.saatzer@frost.com akravetz@frost.comWayne Plucker Tony VizzoneResearch Manager Sales ManagerAerospace & Defense Aerospace & Defense(210) 247-3869 (210) 477-8462wayne.plucker@frost.com avizzone@frost.com 22

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